Tuesday, 24 September 2019

Banks' Mergers to create regional behemoths

Joshua Oigara: CEO KCB Group

This is the year of Mergers and Acquisitions in the financial and telecoms sectors in Kenya. According to the scheme of things, these marriages must be consummated by the end of this year.  Finance and Telecoms are the vibrant sectors of the Kenyan economy. The mergers will produce titans, especially in the financial sector, dwarfing their competitors.

In the financial sector, Kenya’s largest bank by assets, Kenya Commercial Bank will acquire a 100 percent stake in National Bank of Kenya in a share swap.
Another group, the NIC group will merge with Commercial Bank of Africa, also, in another share swap, creating the third-largest banking group with more than 100 branches in the country and the East Africa region.
These acquisitions will place the Kenyan financial market firmly in the hands of indigenous banks. Local banks have swiftly shunted local branches of Multinational Banks, such as Barclays Bank and Standard Chartered Bank to the lower ranks of dominance in the local and regional financial markets. These are now the fifth and sixth largest banks in Kenya, having ceded their leadership perch to four locally incorporated banks.
The acquisition of the National Bank by Kenya Commercial Bank will create a behemoth in the region’s financial sector. It will add another 71 branches to KCB’s 175 in Kenya making it the largest bank in terms of reach. Although some of the 301 branches in East Africa, could end up being closed, KCB group will still be a behemoth. In addition, it will bring an additional asset base of US$1.14 billion to KCB group’s $7.46 billion created a behemoth worth US$8.6 billion.
Another merge between the NIC group and CBA group will create the largest bank in Africa with 41 million customers.  Even then, it will rise to the third largest bank group in Kenya behind KCB group’s closest competitor, Equity group which has 289 branches in East and Central Africa, pushing Co-op Bank to the fourth position.  Equity Bank Group’s capital base is the second largest in East Africa standing at US$6.38 billion. The marriage will place Kenya's financial sector firmly in the hands of indigenous hands.
James Mwangi: CEO Equity
 Group Holdings
The acquisitions in the financial sectors are not confined to the local market. Equity Bank, the second-largest bank in Kenya, has entered into a US$105 million share-swap agreement to acquire four branches in the region from Atlas Mara, ATMA. The four branches are in Tanzania, Rwanda, Mozambique, and Zambia. The acquisition will mark the entry of Equity group into Zambia and Mozambique.  
 It is also expanding its footprint on DR Congo with the acquisition of the second-largest bank in that country, Banque Commerciale Du Congo, BCDC. The bank has 29 branches across the country including key cities Kinshasa, Goma, and Lubumbashi. It has an asset base of about $700 million. This adds to the 2015 acquisition of the seventh-largest Bank in DRC, ProCredit Bank. The new acquisitions could catapult Equity to the Pole position in terms of assets expected to hit US$10 billion at the end of the year.
The resultant behemoths will dwarf their competitors in East Africa, making Kenyan banks, the dominant players in the region.  KCB group’s asset base of US$8.6 billion is larger than the four top banks in Uganda and Tanzania combined whose asset base stands at US$7.24. The largest Tanzanian bank, CRDB, holds an estimated $2.52 billion worth of assets followed closely by NMB with an estimated $2.36 billion. In Uganda, Stanbic Bank controls $1.5 billion in assets, followed by Centenary Bank with $866 million, reported www.theeastafrican.com
Since all the merging banks have branches in the region, the financial market in East Africa too will be dominated by Kenyan banks.
The expansion into DR Congo and Ethiopia by both KCB and EGH will pit the master and his apprentice. The KCB Group Chief Executive, Joshua Oigara, cut his eyes in the Banking sector at Equity Bank, under the pupilage of James Mwangi, the CEO of the Equity bank group. EGH, headed by Mr. Mwangi, is gunning to be the largest bank in East and Central Africa when its assets grow to US$10 billion.
And in the telecommunications sector, Telkom Kenya and Airtel, will merge to form the second largest Mobile services provider in the Country, after Safaricom.
Safaricom, the most profitable company in East Africa, is a pioneer in innovation. It was the first in the world mobile money transfers with M-Pesa which came life in 2007. It boasts of 27 million subscribers in a country of 55 million people. The competitors, Airtel and Telkom Kenya, boast a combined subscription base of 17 million people.
It remains to be seen how the merger will affect Safaricom’s dominance in the telecoms’ sector. However, the behemoth, analysts say, should now set sights beyond the borders, targeting underserved markets such as Ethiopia, South Sudan and DR Congo.

Monday, 16 September 2019

EACOP: Total's Bad Omen,Magufuli's nightmare

The three potential Routes to evacuate
 Ugandan crude oil
The French Oil major, Total Oil SPA's foray into East Africa's crude oil industry has run into a huge storm. In what looks like a bad Omen,   Total has stopped all activities to do with East Africa Crude Oil Pipeline.

This follows a double blow to Total SPA which owns 33 percent stake at Hoima Oil Wells in Uganda. The firm was to buy a 22 percent stake from its partner Tullow for $900 million. However, the deal has collapsed following a disagreement with the government over Capital gains tax.

The death of the buy-out deal left the construction of 1450KM  East Africa Crude Oil Pipeline, EACOP, from Hoima to Tanga Port in Tanzania, which was connected to the sale, in a limbo. That Total Oil SPA has abandoned the project, putting its implementation in doubt is a Bad Omen for the French Oil major.

 Total had gunned for a majority stake at Uganda’s crude oil Wells through a buy-out of 22 percent of Tullow’s stake. This would have made Total SA the majority shareholder with 55 percent stake the lead implementer of the Crude Pipeline project. Now that the sale has failed-at least for now- and Tullow is firmly back at Hoima oil fields, EACOP is in jeopardy.
The collapse of the deal is a nightmare for Tanzania's President John Magufuli. He viciously yanked the Pipeline from Kenya by deceit. But he is an angry man. So frustrated the is he, that he publicly asked his Ugandan counterpart, Yoweri Museveni, to dismiss the Commissioner General of Uganda Revenue Authority. A Tanzania publication, www.thecitizen.co.tz quoted him as boasting that he has “dismissed six- Commissioners General in three and a half years.” Magufuli could not see why his Ugandan counterpart cannot do the same.

He has every reason to be frustrated: A large proportion, 85 percent, of the East Africa Crude Oil Pipeline, passes through Tanzania and she had lined up a significant number of local contractors to work in the US$5.5 billion Project. Now with the disagreement, all these hopes could evaporate. Not only the contracts but also the $12 barrel transport fee is also at stake. The relatively idle Tanga Port is also at risk.

 Tullow, which opposes the Tanzanian route, could kill it, choosing its preferred route, through Kenya.  Also, Read http://eaers.blogspot.com/2018/01/will-totals-entry-into-kenya-kill-hoima.html  

 Total SPA has made a number of strategic blunders in East Africa that won her more enemies than friends, especially in Kenya.  First, it engineered the re-routing of the Oil Pipeline from  Kenya based on a flimsy feasibility study that bad-mouthed Kenya.  

The second blunder was the announcement by its CEO, Patrick Pouyanne. Soon after the purchase of the 25 percent stake held by MAERSK in Turkana Basin in Kenya in August last year, he announced that would lobby Kenya to ship its oil through Tanzania’s Port of Tanga.

Lapsset Corridor: Lamu Port no longer a
proposal but a reality
That almost torpedoed her acquisition and she had to beat a hasty retreat, supporting Kenya’s decision to evacuate her oil through the Lamu Port.   

The failure to secure deals in Uganda is a bad omen for Total Oil SPA for it gives Tullow a major stake in the Crude Oil sector in East Africa. Tullow Oil Plc favors the Kenyan route to the New Lamu Port.

 Now, the failure of the Ugandan deal gives her the muscle she needs to drive the Pipeline route her way. Therefore, the potential for the death of the Hoima-Tanga pipeline and return to the originally planned Hoima-Lokichar-Lamu port route is high. The Lamu Port is no longer a proposal for the first berth will become operational in a month’s time.

 There are compelling economic reasons for that potential shift: First the Hoima- Tanga Pipeline is the most expensive of the three alternative routes to ship Uganda’s crude oil. It will cost $5.5 billion compared to US$4.4 billion for the Hoima-Lokichar -Lamu route said a report on the local TV channel, www.citizentv.co.ke.

Further, a Joint venture Pipeline between Kenya and Uganda will see Uganda ship her Crude at $9 per barrel compared to $12 on the Tanzanian route.

And third, Tullow has no stake in Tanzania at all but has a stake in Kenya and Uganda being the firm that discovered Oil in the two countries. Should Total SA, insist on the Hoima- Tanga Route, being the minority shareholder in both Kenya and Ugandan Oil Wells, she could be forced to farm down, thus leaving East Africa.

Could Kenya have the last laugh on the Crude Oil Pipeline in East Africa? That looks likely.  Both Tullow Oil and Kenya government agree on the evacuation of Oil through the Lamu Port in Kenya. 

For Kenya, an Oil pipeline to Lamu is an integral part of the LAPSSET corridor and would brook no change. It is a developmental issue that cannot be compromised.

Two, Kenya is already ahead of Uganda in oil exports, having exported the first 200,000 barrels this month on an experimental basis. So Kenya is already ahead of Uganda in oil exports though Oil was discovered in Uganda earlier than in Kenya.

Three, Uganda’s interest is to export Oil and is likely to be impatient with prolonged negotiations which delay its plan to export oil by 2022. That plan is already scuttled by the disagreement in Kampala. Uganda is therefore likely to favor the line that exports oil sooner.
Given that Kenya is in agreement with the Oil partners on the implementation of the US$2.1 billion Lokichar-Lamu pipeline of which Tullow is the lead implementer,  Uganda is likely to dump Tanzania. That would give Kenya the last laugh, analysts say.

Wednesday, 4 September 2019

Kenya exports Oil, Hoima-Tanga Pipeline stalls.

The trucks that evacuated Crude by 
Road to Mombasa
Kenya has just exported its first 200,000 Barrels of Crude oil from its Lokichar basin. The export will earn Kenya some US$12 million. This is a minuscule amount compared to Kenya’s GDP.

However, it is significant in that, it demonstrates the advantages of decisive action compared to indecision: Resolute action has positive results at a cheaper rate while procrastination delays action and blocks the benefits accruing from firm decision making.

The export,  billed " Pilot oil export" has thrust Kenya into the oil exporters club, seven years after the first barrel was discovered in the Lokichar Basin, in Turkana county.

Kenya’s crude is said to be among the best in the world, at par with the Brent Crude C1. Sold at $60 a barrel, it was a windfall of sorts for the country, since officials in the Ministry of Energy and the developer, Tullow Oil, say it was viable at US$56 a barrel.

On the other hand, Reuters reported, the construction of the Oil Pipeline to the Tanga Port in Tanzania, from Hoima in Uganda, has been indefinitely put on hold following a disagreement between Tullow Oil and its partners, Total oil and China’s CONCC over taxes.

Tullow, which discovered Oil in the Hoima Basin in Uganda back in 2006, was never for the idea of evacuating Uganda’s crude through Tanzania. And this, analysts say, could have contributed to the decision by Tullow to offload 21 percent of its stake in Uganda to the French oil major, Total SPA. Total, through the Tanzanian President, engineered the re-routing of the pipeline from Kenya's Lamu Port to Tanzania's Tanga Port.

An oil pipeline. The Hoima-Tanga pipeline has hit a storm
Now Uganda’s target of exporting crude oil by 2022 is in a disarray following the disagreement.
The re-routing of the oil Pipeline to Tanzania also derailed the previous MOU between Kenya and Uganda to construct a standard gauge Railway line, SGR, from Kenya’s Port of Mombasa to Kigali, Rwanda Via Uganda.
In 2013, the then “coalition of the willing” comprising of; Rwanda Kenya and Uganda agreed to upgrade the Northern Corridor Railway line to Standard Gauge standard. The Rail then was at a cost of US$13.5 billion including rolling stock and locomotives.
 Construction was to be completed last year. Read  http://eaers.blogspot.com/2013/07/coming-soon-mombasa-kigali-express.html. To date, the line is behind schedule. Only Kenya has built the Nairobi- Mombasa section and is extending it to Naivasha, 120 Km North West of Nairobi.

Trouble for the SGR began when Uganda reneged on an MOU with Kenya to build the Hoima-Lokichar –Lamu crude oil Pipeline, choosing the Tanzania Port of Tanga instead. Tanzania, after yanking the Pipeline from Kenya also began sweet-talking Uganda to also use the Central Corridor.
That effectively derailed the Mombasa Port- Kampala - Kigali line.

Kenya responded by re-designing the SGR to terminate at Kisumu instead of Malaba, on the Kenya Uganda border. The Financier, the Chinese Exim bank grew cold feet on its funding.

Kenya also opted to go it alone on the oil Pipeline from Lokichar to the Lamu Port. The first berth in the Greenfield Port is due for completion in a month’s time and the first Post- Panamax ship is expected to dock in November this year. Kenya’s ambition of exporting Crude through the Lamu port, therefore, looks achievable. The completion of the first birth will jump-start the development of other related projects in the Lapsset corridor using the Lamu Port as their entry point.

However, Uganda has indicated that it may favor the Northern Corridor line if Kenya assures her that her side of the line will terminate at Malaba as initially agreed.  

This follows a study by Uganda’s Ministry of Transport and Public works, which concluded that the Central Corridor is not a priority for Uganda. The study established that the Central Corridor SGR, which will terminate at Mwanza, Tanzania’s Port city on Lake Victoria, will be a bottleneck for Uganda’s economic ambitions.

It established that to carry a single trainload of 216 containers will require five ferries each carrying 44 containers. The ferries are not available since Marine transport on Lake Victoria collapsed more than 10 years ago. Read:http://eaers.blogspot.com/2017/06/the-central-corridor-is-no-option-for.html.

Decisiveness and risk-taking is thus a critical variable in economic growth and increased productivity. By contrast, indecision and confusion hamper wealth creation. Indecision and procrastination are wrong decisions and they are slowing the pace of wealth creation in East Africa.
 The design layout of Lamu Port's Berth 1 due
 for completion in a month

According to the Africa Economic Outlook 2019, Kenya and Ethiopia are the leading debtors in East Africa. Ethiopia’s indebtedness stood at 62 percent of the GDP in June 2018, while Kenya’s was 57 percent of the GDP in September 2018.

The two countries are the largest economies in the fastest-growing region in Sub-Saharan Africa.
 Ethiopia’s GDP growth rate is estimated at 8.5 percent a year, while Kenya’s is just around six percent.  The driver of this growth is public investment in infrastructure.

Both countries have heavily invested in mega infrastructure projects in energy and transport with borrowed funds.
These are pricey projects which have driven the debt to GDP ratio up. But they are also fast-growing countries which is expected to drive the ratio down in the future.

The leadership in both countries has been “daring” in that they have borrowed to invest in Infrastructure despite warnings from the Bretton Woods institutions. Since infrastructure is an enabler in economic progress, the economies have responded by posting fast rates of growth. At the going pace, the two economies GDP will cross- the US$100 billion mark this year, says the IMF.

In the meantime, Uganda is likely to join Tanzania in cirrhotic growth. According to the IMF, Tanzania’s GDP will slow down to just around 4 percent in the short term, down from a decade long rate of more than 7 percent.

Wednesday, 21 August 2019

Kenya is world's eighth - largest geothermal powerhouse

Kenya leapfrogs Iceland. Next target?
Kenya is now the world’s eighth-largest geothermal producer.  It has leapfrogged Iceland. Kenya’s electricity generating company, KenGen, last month added another 79 Mw from its Olkaria V unit 1, bringing the total Geothermal generating capacity to 769 MW ahead of Iceland’s 710 MW.
Kengen will also launch the balance of its 165.4 Mw Olkaria capacity at the end of this month, further widening the gap with Iceland. It also narrows the gap between Kenya and Italy, the “birthplace” of geothermal energy technology.
KenGen plans to add another 1,745 Megawatts from geothermal by 2025. Coupled with generation from other producers, this will raise its geothermal generating capacity more than 2357 Mw, bringing Kenya, near neck to neck with the US. The United States is the current leader in geothermal generation with a capacity of 3,591 MW, says energy siren. www.energysiren.co.ke.
Before then, there are three other giants to leapfrog. These are; Italy 944 MW; Mexico 951 MW and New Zealand 980 MW. All these are within Kenya’s sight given its a penchant for large capacity plants. Currently, there are three projects whose contracts have been approved to generate more than 400 MW of geothermal power in the next three years. These are; Suswa 300MW, and Menengai GDC fields 105 MW.
 Kenya is probably the only country in the world that has geothermal as its baseload source. Baseload is the minimum power that must be in the system always. Hydropower has relinquished that position, which it held for dog years to geothermal. Kenya’s geothermal potential is estimated at 10 GW found mainly in the Great Rift Valley.
Italy discovered and developed geothermal energy more than 100 years ago. It was the leader until the second half of the 20th century when other countries tapped into the power source, says Energy Siren.
Given the rise of geothermal, the Kenyan power distributor, KPLC, has re-engineered its power purchase–mix, buying more geothermal energy in 2018.  The mix comprised of: geothermal 47 percent; hydro 39 percent; Thermal 13 percent in 2018.  The mix is expected to change further this year with the entry of must-consume sources such as Wind and Solar power. Wind formed only one percent of its purchases last year and solar power was virtually unknown.
The geothermal capacity at 769MW is second only to Hydro at 821 MW, but given the growing investment in this industry, Hydro will soon relinquish its top slot.
Kenya’s current electricity generation capacity has risen to 2715 MW against a peak demand of 1802 MW. Demand, according to KPLC, grows at 8.8 percent a year.  With the entry of the 165.4 MW Olkaria V, in July, Kenya’s power generating capacity will rise to 2880 MW. Demand, at the going growth rate,  
The Olkaria geothermal power station
will stand at 1961MW, leaving a spare capacity of 919 MW or 32 percent.
The spare capacity, which is a requirement in power generation, stood at 23 percent by June 31, 2018, says the power Distributor, KPLC, in its annual report 2017/18.  However, the capacity rose to 34 percent following the Commissioning of Lake Turkana wind power and the Garissa solar farm.  These two added a further 364MW to the national grid.
 Although the spare capacity is good for the power generating community- and the country since it eliminates power black-outs and rationing-they are a cost that has to be financed by the consumer.
Excess capacity,--idle capacity if you wish-  is also good for planning  for it ensures that new investment in power generation is prudently studied-and allowed when necessary.
 The growth of renewable and cheap green energy sources has rendered thermal technology obsolete. Power deficits in the 1990s, according to a World Bank study, forced many African governments to allow investment in quick- to -commission thermal powered generator. At that time, crude oil Price were less than $20 per barrel.  They were thus manageable. However, with the rise in crude prices, thermal power generation has become expensive.
These contracts, called Power Purchase Agreements, PPAs still continue to haunt the electricity consumer. Coupled with excess capacity now, they keep the power bills high.
With hydro turning into a stabilization source, the need to re-engineer power generation sources in Kenya is high. The restructuring will involve decommissioning thermal power plants. But the cost of doing so at once is astronomical.  Hence the decision to allow the contracts to run their course, decommissioning thermal plants once their contracts expire.

Thursday, 1 August 2019

Africa needs to invest $1.2trn to fast track infrastructure

Karuma Hydro Dam  in Uganda:
More energy generation needed
According to the Africa Development Bank’s Africa Economic Outlook for 2018, Africa needs to invest a total of US$1.2 trillion over the next seven years on productive and profitable infrastructure projects.  This works to an average spend of US$170 billion a year at the top end.

Of this amount, the continent, through budgetary allocations and donor support, can manage $65 billion a year, leaving a yawning gap of US$105 billion or a total of $735 billion over the seven-year period. The AEO breaks down the sectoral needs as follows in order of priority: US$ 35-50 billion on energy, $35-47 billion on transport, and $55-66 billion on water and sanitation. 
Africa is under increased pressure to invest in infrastructure in order to remove the inefficiencies that could stall the recently launched continent-wide free trade area. AfCFTA billed the largest free trade area in the world holds the key to Africa’s economic independence and security.

 However, the continent’s productive sectors are uncompetitive due to structural deficiencies, among which is small markets, and low capacity utilization due to infrastructure bottlenecks. For AfCFTA to succeed, experts say, the continent needs to invest in transport and energy infrastructure. 

Thika Highway in Kenya:
More of these needed
It needs to improve on productivity by removing nontariff barriers among which is poor infrastructure. Ports are inefficient because of the lack of reliable transport inland. Goods take weeks to reach the customer because of poor roads and lack of high-speed railway lines. Manufacturers invest in own generators because of unreliable grid power supply, rationing, and outages.

All these bottlenecks increase the cost of production leading to high consumer prices, low demand, and the proliferation of cheap imports. Industrialization cannot grow in such a business environment. Yet Africa must industrialize to create jobs and reduce the incident of poverty.
Given that domestic sources cannot meet the continent’s demand for infrastructure, external sources will be necessary. The continent will need to raise at least US$0.8 trillion from external sources to build infrastructure over the next seven years as a top priority.
Offloading at a Port: Lack of good
  overland Transport cause delays at Ports
This is a huge amount for a continent whose GDP now stands at US$2.5 trillion. Therefore innovation in funds mobilization is necessary.
Of course, the GDP will not remain static. In any case Africa’s GDP growth is robust at around 4.0 percent, way above the growth in other emerging economies. However, this growth cannot generate the funds needed to build infrastructure hence the need to mobilize resources through all mechanisms.
The AEO 2018 says that Institutional investors, Commercial banks and Sovereign fund managers are sitting on US$ 100 trillion in savings. This means that the funds needed to invest in Africa’s infrastructure is a drop in the ocean. However to mobilize these resources, Africa needs to develop a pipeline of bankable projects, says AfDB   www.afdb.org.
Kenya's SGR: More of these will ease
landlocked countries develop
The AFDB has set up the Africa50, www.Africa50.org, an investment vehicle whose job is to help develop such a pipeline of bankable projects in the continent. Africa50’s goal is to move the bulk of project development away from the public to the private sector in order to fast track investment in infrastructure. It, therefore, targets private sector-driven projects or those designed on a PPP model in transport infrastructure, energy, and ICT. These sectors, it is estimated, will consume 80 percent of the total investment in infrastructure.
  Africa50 capitalized at US$870 million, is owned by 30 shareholders including 27 countries and three Central Banks.
Although a step in the right direction, it is doubtful that Africa 50 can achieve the target infrastructure levels on its own in the short-run. Some Borrowing by African states is therefore unavoidable. Even then, the active participation of Africa50 could reduce the risk profile of debts in Africa and reduce the cost of borrowing.

Tuesday, 16 July 2019

AfCFTA: The African Airlines' hanging fruit

Ethiopian: The only profitable airline in Africa

 Africa must eliminate import taxes and Prioritize of Air transport to actualize the Continental Free Trade Area, AfCFTA, born just slightly over a month ago.  Both decisions, say, experts, can result in rapid growth in intra-Africa trade.

 Intra-Africa trade is hardly 15 percent of total trade in Africa. This means that dependence on taxes from Intra-Africa trade to support fragile budgets is not significant. And with the US$1 billion compensation fund set by Afrexim Bank, the decision can be made immediately.

 According to the UN Economic Commission for Africa,   UNECA, removal of import duties will increase intra-Africa trade by 52.3 percent, and double it if non-tariff barriers are removed. In other words, removing import taxes will raise intra-Africa trade to 23 percent in the short run. In the same breath, UNECA says that removal of nontariff barriers will double intra-Africa trade to 30 percent in the short run.https://au.int/en/document/36085-doc-qacftaenrev15marchpdf

Precision Air: Loss Making
AfCFTA has created the largest free trade area in the world, after the WTO, experts say. With a total population of 1.2 billion, a total GDP of $2.5 trillion, and total business and consumer spending in excess of $4 trillion a year .https://www.imf.org/external/pubs/ft/fandd/2018/12/afcfta-economic-integration-in-africa-fofack.htm
This is a mouthwatering prospect for the Small manufacturing enterprises in the Continent who are constrained by small domestic markets and poor transport infrastructure.
 The major nontariff barrier is transport; for Africa suffers a dearth of transnational transport infrastructures such as roads and railway lines. Overland infrastructure is expensive and takes longer to develop.
 According to Africa Development Bank, AfDB, Africa needs to invest anything up to US$160 billion a year on hard Infrastructure- Roads, Railroads, power generation, and Water supplies- for nearly a decade in order to meet all infrastructure needs.
Of this, the continent can raise only US$50 billion a year internally, leaving a yawning gap of US$107 billion a year. This means that for every year’s worth of investment in infrastructure, Africa is two years behind the ideal.
The major immediate solution to this handicap is air transport, say, experts.
Without reliable overland transport, African Airlines must step in and fill the gap to actualize this dream. According to International Air Transport Association, IATA, there are 349 commercial Airports in Africa, giving an average of six Airports for each country. https://www.icao.int/
This suggests that Airports are underutilized.
The same presentation shows that there are 161 airlines which do 1.13 million flights a year, transporting 98 million passengers. These numbers give the following averages; each flight carries 87 passengers. Further, each of the 161 airlines ship an average of 609,000 passengers per year. No wonder African airlines are the most expensive in the world because of low- load factor.
In January last year, Africa liberalized Air transport by launching the Single Africa Air Transport Market, SAATM. This means that an “eligible” aircraft or airliner  from one African country  can fly over another African country’s airspace and land on its territory by using a simple prior notification procedure, says IATA.

According to IATA, the liberalized Airspace creates opportunities for African Airlines to increase its frequencies and traffic in the continent. And since air travel is faster, it will raise the efficiency of delivery leading to improved economic efficiency and lower costs. Since Air transport is an enabler, its growth will lead to growth in other sectors of the economy dependent on it.

The 161 airlines, according to IATA, generate US$55 billion a year. All are in the red, posting losses of up to one percent of the revenue in 2018. This was a major improvement from losses of up to six percent in 2015. But liberalization will see air transport’s contribution to the GDP rise.

Kenya-airways: Must exploit its
 large footprint Africa to turn  round
It is, therefore, time the airlines moved fast to fill this gap, increase business for themselves and their customers, and pad up their bottom lines. They have a lifeline, let them grab it.  Since a large proportion of the airlines are state-owned, plunging into driving intra-Africa trade will save the taxpayers the burden of keeping them afloat. 

There is no shortage of business in Africa. According to Bloomberg, African economies are growing faster than elsewhere including the developed West, second only to Asia.

This growth was driven in large part, by Africa’s growing middle class which was estimated at 355 million people in 2013.  The robust economic growth, says Bloomberg, pulls an estimated 90 million people a year out of poverty which suggests that nearly half of Africa’s population is middle class.  That is five times what the airlines transport in a year.
If African Airlines double the passenger traffic to just 200 million, experts say, their contribution to Africa’s GDP will rise to $110 billion in the short run. That will mean more jobs, larger profits, and more taxes.  This is a hanging fruit.
Over to you! aviation sector.

Monday, 1 July 2019

Damn the free market system!

The stock of raw nuts:
 Market boycott hurting Tanzania
 Satan must be the inventor of that distribution system called free markets and its relatives, viz:  production, demand, price, and inflation!  The market is an unmitigated autocrat.
Look, the animal, whatever its size and location, behaves in the same way; deciding who gets how much of what, who produces how much of what, who sales what to who and how much of it.  This clan has no respect for anyone however powerful. Even governments dance to its dictates. Don’t be fooled. Those sweet sounding documents going by the name policy are just responses to market dictates. No one dares challenge this animal unless they are suicidal.
 The market calls our desire for things, the demand which, it tells us, is unlimited.  Therefore to ration our demand, it introduced another relative called price – the money you pay to buy something.  Basically, the price is meant to ensure not everybody gets what they need, because the market says, money is scarce.
So we are forced to buy just what our money can buy and keep dreaming of buying more. And we keep going back to buy the same quantity of the same things. The market calls this trade turnover- the many times you return to buy the same things- And, it means profit to those selling.
 Price gives more to people who need less and less to people who need more because they cannot afford the price. 
The market also dictates how much you will get from your products and who buys. It is nor respecter of Kings or pauper. Both have to dance to their dictates.   If in doubt, ask President John Pombe Magufuli of Tanzania. Last year, he decided that Cashew nuts farmers should earn more than the price the market offered. In a huff, he raised the price by 94 percent. The market walked away.
Raw nuts
 He sent the army to buy. After that, he lost control of the market. No trader remembered that Tanzania had cashew nuts in its stores. They simply forgot! And Tanzania is still sitting on last year’s stocks for no one remembers Tanzania harvested Cashew Nuts last year. We fear the market could also forget the That Tanzania is expecting to harvest another 200,000 tons this year.
 In the meantime, Agriculture exports slumped by more than 50 percent to US$554.1 million from $1.225 billion the year before. This, because Cashew nuts were not exported among other reasons. Talk of markets boycotting a supplier!
 A Market’s boycott can push one to desperation because one has to sell what they produce to buy what others produce.  And desperation tosses due diligence through the window. Or where it is still in the house, it is pushed to the backburner, making the seller vulnerable.  The smart sellers coin some attractive slogans to market their produce.
How many times does your local supermarket advertise offers of one product or the other?   How many times does it have promotions and other Slogans such as “Hurry while stocks last?” Take a keen look, the products are either near their expiry date. Or its sales were low due to stiff competition from their peers in the neighborhood.
In some instances, desperate sellers just deal with anyone who can take the stock away from them. Here Conmen take advantage and swindle the seller. Others promise to buy but just vaporize. This happened to Tanzania when a smooth-talking Conman entered into a contract with it to buy the Cashew nuts despite reservations by Kenyan press about the ability of the alleged buyer.
Months later, the buyer has yet to come up with the money. The deal was tossed out of the window and Tanzania went back to the drawing board. The Stock is still gathering dust in Warehouse while new produce is about to hit the market.
Never joke with markets. They are unmitigated dictators. Venezuela’s Hugo Chavez and his successor Nicholas Maduro, learned that lesson the hard way.